The inexorable rise of free – paid apps example

Business Insider posted these two charts today under the headline Paid Apps are Dead. Looking at the data, it’s hard to refute that claim. App developers are still making money, of course, it’s just that they are doing it through in-app purchases rather than from an up-front charge. This solution is better for consumers because they get to try before they buy, and better for app developers who can increase their overall revenue by enabling their superfans to spend vastly more money than anyone would ever pay in an up-front charge. Supercell is the most recent poster child for this model. Only 10% of their users pay anything at all to the company, yet last year they made $40m in profit on $105m in revenues and earlier this year Softbank valued the company at $3bn (see here for more details).

As Nicholas Lovell explains in The Curve other companies should be copying Supercell’s model. The idea of The Curve is that the revenue potential of every user can be plotted on a curve – most will be at $0, or very close to it, but there will be a few where the number is much higher – often thousands of dollars. To make money in a digital age companies must organise their business models to exploit the curve and get the most value from their products and customers.

As Nicholas also explains, The Curve isn’t limited to apps, it applies to all industries where customers can be engaged for zero marginal cost. Zero marginal cost allows companies to build relationships by giving away small amounts of value in the hope of recouping much greater value down the line.